A volunteer fire company conducts weekly public dances. Holding
public dances and charging admission on a regular basis may, given the facts and
circumstances of a particular case, be considered an unrelated trade or
business. However, because the work at the dances is performed by unpaid
volunteers, the activity is not an unrelated trade or business.

A trade or business carried on by a 501(c)(3) organization or
by a governmental college or university primarily for the convenience of its
members, students, patients, officers, or employees is not an unrelated trade or
business. For example, a laundry operated by a college for the purpose of
laundering dormitory linens and students' clothing is not an unrelated trade or
business.

This is any payment made by a person engaged in a trade or business
for which the person will receive no substantial benefit other than the use or
acknowledgment of the business name, logo, or product lines in connection with
the organization's activities. "Use or acknowledgment" does not include
advertising the sponsor's products or services. The organization's activities
include all its activities, whether or not related to its exempt purposes.

For example, if, in return for receiving a sponsorship payment,
an organization promises to use the sponsor's name or logo in acknowledging the
sponsor's support for an educational or fundraising event, the payment is a
qualified sponsorship payment and is not subject to the unrelated business
income tax.

Providing facilities, services, or other privileges (for example,
complimentary tickets, pro-am playing spots in golf tournaments, or receptions
for major donors) to a sponsor or the sponsor's designees in connection with a
sponsorship payment does not affect whether the payment is a qualified
sponsorship payment. Instead, providing these goods or services is treated as a
separate transaction in determining whether the organization has unrelated
business income from the event. Generally, if the services or facilities are not
a substantial benefit or if providing them is a related business activity, the
payments will not be subject to the unrelated business income tax.

Similarly, the sponsor's receipt of a license to use an intangible
asset (for example, a trademark, logo, or designation) of the organization is
treated as separate from the qualified sponsorship transaction in determining
whether the organization has unrelated business taxable income.

If part of a payment would be a qualified sponsorship payment
if paid separately, that part is treated as a separate payment. For example, if
a sponsorship payment entitles the sponsor to both product advertising and the
use or acknowledgment of the sponsor's name or logo by the organization, then
the unrelated business income tax does not apply to the part of the payment that
is more than the fair market value of the product advertising.

A payment is not a qualified sponsorship payment if, in return,
the organization advertises the sponsor's products or services. For information
on the treatment of payments for advertising, see
Exploitation of Exempt Activity—Advertising Sales in chapter 4.

Advertising includes:

Messages containing qualitative or comparative language, price
information, or other indications of savings or value;

Endorsements; and

Inducements to purchase, sell, or use the products or services.

The use of promotional logos or slogans that are an established
part of the sponsor's identity is not, by itself, advertising. In addition, mere
distribution or display of a sponsor's product by the organization to the public
at a sponsored event, whether for free or for remuneration, is considered use or
acknowledgment of the product rather than advertising.

A payment is not a qualified sponsorship payment if its amount
is contingent, by contract or otherwise, upon the level of attendance at one or
more events, broadcast ratings, or other factors indicating the degree of public
exposure to one or more events. However, the fact that a sponsorship payment is
contingent upon an event actually taking place or being broadcast does not, by
itself, affect whether a payment qualifies.

A payment is not a qualified sponsorship payment if it entitles
the payer to the use or acknowledgment of the business name, logo, or product
lines in the organization's periodical. For this purpose, a periodical is any
regularly scheduled and printed material (for example, a monthly journal)
published by or on behalf of the organization. It does not include material that
is related to and primarily distributed in connection with a specific event
conducted by the organization (for example, a program or brochure distributed at
a sponsored event).

The treatment of payments that entitle the payer to the depiction
of the payer's name, logo, or products lines in an organization's periodical is
determined under the rules that apply to advertising activities. See
Sales of advertising space under
Examples, earlier in this chapter. Also see
Exploitation of Exempt Activity—Advertising Sales in chapter 4.

A payment is not a qualified sponsorship payment if it is made
in connection with any qualified convention or trade show activity. The
exclusion of qualified convention or trade show activities from the definition
of unrelated trade or business is explained later under
Convention or trade show activity.

A trade or business that consists of selling merchandise, substantially
all of which the organization received as gifts or contributions, is not an
unrelated trade or business. For example, a thrift shop operated by a tax-exempt
organization that sells donated clothes and books to the general public, with
the proceeds going to the exempt organization, is not an unrelated trade or
business.

The sale of certain items by a local association of employees
described in section 501(c)(4), organized before May 17, 1969, is not an
unrelated trade or business if the items are sold for the convenience of the
association's members at their usual place of employment. This exclusion applies
only to the sale of work-related clothes and equipment and items normally sold
through vending machines, food dispensing facilities, or by snack bars.

For a game to meet the legal definition of bingo, wagers must
be placed, winners must be determined, and prizes or other property must be
distributed in the presence of all persons placing wagers in that game.

A wagering game that does not meet the legal definition of bingo
does not qualify for the exclusion, regardless of its name. For example,
"instant bingo," in which a player buys a pre-packaged bingo card with pull-tabs
that the player removes to determine if he or she is a winner, does not qualify.

This exclusion applies only if bingo is legal under the laws
of the jurisdiction where it is conducted. The fact that a jurisdiction's law
that prohibits bingo is rarely enforced or is widely disregarded does not make
the conduct of bingo legal for this purpose.

This exclusion applies only if for-profit organizations cannot
regularly carry on bingo games in any part of the same jurisdiction.
Jurisdiction is normally the entire state; however, in certain situations, local
jurisdiction will control.

Tax-exempt organizations X and Y are organized under the laws
of state N, which has a law that permits exempt organizations to conduct bingo
games. In addition, for-profit organizations are permitted to conduct bingo
games in city S, a resort community located in county R. Several for-profit
organizations conduct nightly games. Y conducts weekly bingo games in city S,
while X conducts weekly games in county R. Since state law confines the
for-profit organizations to city S, local jurisdiction controls. Y's bingo games
conducted in city S are an unrelated trade or business. However, X's bingo games
conducted in county R outside of city S are not an unrelated trade or business.

The term unrelated trade or business does not include qualified
pole rentals by a mutual or cooperative telephone or electric company described
in section 501(c)(12). A qualified pole rental is the rental of a pole (or other
structure used to support wires) if the pole (or other structure) is used:

By the telephone or electric company to support one or more
wires that the company uses in providing telephone or electric services to its
members, and

According to the rental, to support one or more wires (in
addition to the wires described in
1) for use in connection with the transmission by wire of electricity
or of telephone or other communications.

For this purpose, the term rental includes any sale of the right
to use the pole (or other structure).

The term unrelated trade or business does not include activities
relating to the distribution of low cost articles incidental to soliciting
charitable contributions. This applies to organizations described in section 501
that are eligible to receive charitable contributions.

A distribution is considered incidental to the solicitation of
a charitable contribution if:

The recipient did not request the distribution,

The distribution is made without the express consent of the
recipient, and

The article is accompanied by a request for a charitable contribution
to the organization and a statement that the recipient may keep the low cost
article regardless of whether a contribution is made.

An article is considered low cost if the cost of an item (or
the aggregate costs if more than one item) distributed to a single recipient in
a tax year is not more than $5, indexed annually for inflation. The maximum cost
of a low cost article is $9.50 for 2009. The cost of an article is the cost to
the organization that distributes the item or on whose behalf it is distributed.

The exchange or rental of member or donor lists between organizations
described in section 501 that are eligible to receive charitable contributions
is not included in the term unrelated trade or business.

The providing of certain services at or below cost by an exempt
hospital to other exempt hospitals that have facilities for 100 or fewer
inpatients is not an unrelated trade or business. This exclusion applies only to
services described in section 501(e)(1)(A).

An unrelated trade or business does not include a qualified public
entertainment activity. A public entertainment activity is one traditionally
conducted at a fair or exposition promoting agriculture and education, including
any activity whose purpose is designed to attract the public to fairs or
expositions or to promote the breeding of animals or the development of products
or equipment.

A qualified public entertainment activity is one conducted by
a qualifying organization:

In conjunction with an international, national, state, regional,
or local fair or exposition;

In accordance with state law that permits the activity to
be operated or conducted solely by such an organization or by an agency,
instrumentality, or political subdivision of the state; or

In accordance with state law that permits an organization
to be granted a license to conduct an activity for not more than 20 days on
paying the state a lower percentage of the revenue from the activity than the
state charges nonqualifying organizations that hold similar activities.

For these purposes, a qualifying organization is an organization
described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts
an agricultural and educational fair or exposition as one of its substantial
exempt purposes. Its conducting qualified public entertainment activities will
not affect determination of its exempt status.

An unrelated trade or business does not include qualified convention
or trade show activities conducted at a convention, annual meeting, or trade
show.

A qualified convention or trade show activity is any activity
of a kind traditionally carried on by a qualifying organization in conjunction
with an international, national, state, regional, or local convention, annual
meeting, or show if:

One of the purposes of the organization in sponsoring the
activity is promoting and stimulating interest in, and demand for, the products
and services of that industry or educating the persons in attendance regarding
new products and services or new rules and regulations affecting the industry;
and

The show is designed to achieve its purpose through the character
of the exhibits and the extent of the industry products that are displayed.

For these purposes, a qualifying organization is one described
in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). The organization must
regularly conduct, as one of its substantial exempt purposes, a qualified
convention or trade show activity.

The rental of display space to exhibitors (including exhibitors
who are suppliers) at a qualified convention or trade show is not an unrelated
trade or business even if the exhibitors who rent the space are permitted to
sell or solicit orders. For this purpose, a supplier's exhibit is one in which
the exhibitor displays goods or services that are supplied to, rather than by,
members of the qualifying organization in the conduct of these members' own
trades or businesses.

Certain Internet activities conducted by a trade association described in
section 501(c)(6) will be considered qualified convention and trade show
activity if conducted on a special supplementary section of the association's
website in conjunction with a trade show conducted by the association. The trade
show itself must be a qualified convention and trade show activity. The
supplementary section of the website must be ancillary to, and serve to augment
and enhance, the trade show, as when it makes available the same information
available at the trade show and is available only during a time period that
coincides with the time period that the trade show is in operation. Conversely,
Internet activities that are not conducted in conjunction with a qualified
convention and trade show activity and that do not augment and enhance the trade
show cannot themselves be qualified convention and trade show activity.